As aviation recovers, airports need flexibility in setting airport charges

Luis Felipe de Oliveira by Luis Felipe de Oliveira | May 4, 2021

In last month’s blog I shared some signs of optimism for our industry brought by the COVID-19 vaccines and expressed my positive vision for the future months. All good news brings hope, however it is important not to lose sight of the damage caused by this historic crisis.

Last year the pandemic ripped through the heart of aviation – airports recorded historic revenue loss in 2020, a trend that is projected to continue this year, and 4.8 million direct jobs have been lost. Around 60% of aviation jobs are at airports and local economies have been heavily affected by the reduction of activity and job losses due to the impact and effects of the pandemic.

Passenger traffic vanished from airports, but airport operators had to continue to maintain asset-intensive infrastructure with high fixed-cost. The financial challenges will remain in the recovery period, as ACI forecasts that global passenger traffic is not expected to recover to 2019 levels before 2024.

To ensure that aviation can continue to provide the economic and social benefits, it is crucial that airport operators and those authorities that oversee them chart a new path to enable an economically sustainable recovery of airports beyond COVID-19, as well as to recover millions of direct jobs that have been lost. Now more than ever the entire aviation ecosystem needs to work together to come out of this crisis together.

It is in this context that the airport community conducted an overhaul of global policies and positions on the economics of airports, airport charges, and economic oversight. These were introduced by the Chair of the ACI World Economics Standing Committee (WESC) in a recent article.

Best practices and most responsive approaches

ACI and the airport community are advocating for five key best practices and/or responsive approaches of economic oversight to foster the recovery of air transport in a sustainable manner with a win-win outcome for airports and passengers. They can be retrieved in the latest edition of the ACI Word Policy Handbook.

ACI Policy Handbook, 10th edition – 2020
Read more

First, airports should be free to tailor the structure and level of airport charges to their specific circumstances and develop targeted pricing strategies that meet their specific market situations. Such pricing policy is of prime importance as market-based charging strategies are effective in fostering traffic recovery and growth. Incentive mechanisms and policies are often instrumental in fostering airlines’ decision to start flying or grow their operations at airports.

Second, airport charges should be set by airport operators at a level allowing them to cover operating expenditures and capital costs. Airport charges should ensure that airports are economically viable so they can sustain their operations. They should be adequate for attracting investors as the risk associated with airport investments has risen dramatically with the pandemic.

Additionally, the impact of the COVID-19 crisis on airport revenues has been unprecedented, reducing close to $125 billion (figures in US Dollars) from airport revenues in 2020 compared to the projected baseline (pre-COVID-19 revenue forecast). The impact will still be deeply felt in 2021: airports will suffer the loss of more than $94 billion of revenues by year end of 2021 cutting in half airport revenue expectations (-50%) compared to the projected baseline.

As such, revenue gaps should also be addressed to mitigate the financial risk, the people risk, and the infrastructure development risk resulting from the pandemic.

Third, the most responsive approach to set airport charges does not lie in the imposition of heavy-handed regulatory outcomes which are at odds with the market situation of airports. Conversely, commercial agreements between airport operators and airlines, which typically ensure economic incentives in return for airline commitments to deliver additional traffic, are an effective way of determining airport charges. Additionally, such commercial agreements are more effective in ensuring that airport operators are offering the service quality passengers expect.

Fourth, as airports should develop pricing strategies and tailor airport charges to their specific circumstances, ACI suggests policymakers to abandon the mandatory practice of the single till in the jurisdictions that impose such an approach. Dual till approaches in the determination of airport charges are more effective to generate cost efficiencies and foster innovations on the commercial side of the airport business, which represents at least 40% of total airport revenues globally.

Fifth, there should be equal engagement from airports and airlines in an active and constructive airport charges consultation process. While it may be fanciful to think that an airport operator can always meet all requests of all airlines at the same time, airport operators are best placed to strike the balance between the multiple and diversified requests of airlines customers and align these with the airport’s strategic, commercial, and operational objectives to offer an adequate service to passengers.

For practical purposes, the ACI recommended practices on transparency and consultation aim to provide guidance of global relevance on processes leading to setting airport charges.

Moving forward with flexibility and agility

Airport charges are a vital lifeline for airports.

A sound determination of airport charges will be instrumental in supporting the economic recovery of airports and in restoring their connectivity for the benefit of their communities, air travellers, and local businesses.

ACI and the global airport community are committed to maintaining direct and constructive dialogue with our partners, and international, regional, and national policymakers on reforming models of setting airport charges so that they become flexible, agile, and responsive to the needs and circumstances of airports.

Today, COVID-19 has not only raised the expectations we have of science, but it has also accentuated the fact that global challenges require global solutions and international solidarity. The pandemic’s end may be in sight, however we must not forget the importance of collaboration.

Huge strides have been made in the last year and we must continue to face the challenges with unwavering unity to tackle not only the current pandemic, but also other unresolved crises such as climate change, which pose existential threats to humanity and will stay with us when this outbreak subsides.

Air transport has always been an industry based on the interdependence of all its parts, and to ensure that aviation can continue to provide the economic and social benefits, it is crucial that we work together across the industry and hand in hand with ICAO and international health organizations to ensure a coordinated recovery while providing reassurance to travellers and staff.

Luis Felipe de Oliveira

Luis Felipe de Oliveira

Director General, ACI World
Luis Felipe joined ACI World as Director General in June 2020 bringing with him vast experience in commercial and technical aviation. He successfully led the Latin American and Caribbean Air Transport Association (ALTA) between October 2017 and May 2020, promoting positive change in the organization. Prior to joining ALTA, Luis Felipe served as World Fuel Services’ Vice President Supply Development for Latin America and Caribbean where he was responsible for improving World Fuel’s aviation fuel business in the region. He is a Chemical Engineer and graduated from the Catholic University of Rio de Janeiro and has a postgraduate qualification in Finance from the University of São Paulo, an MBA from Dom Cabral Foundation in São Paulo, and Post MBA from Kellogg University in Chicago.
25 articles
Share This